The nuclear agreement with Iran opens the way for a flood of new oil eventually to pour onto world markets, setting up a potential windfall for energy giants.
But it will take a year or more before Iran can increase production substantially, delaying any impact on oil prices.
“It’s not just a matter of turning on the taps again,” said Andrew Slaughter, executive director of the Deloitte Center for Energy Solutions. “They will need some investments and technology.”
With nearly 10 percent of global oil reserves and 18 percent of natural gas reserves, Iran can be an energy market mover and compete with producers such as the U.S., Saudi Arabia and Russia. As optimism increased for a nuclear deal, oil giants Royal Dutch Shell, Total of France and Eni of Italy looked for investment opportunities in Iran in recent weeks.
Never miss a local story.
Even after years of underinvestment and mismanagement of its aging oil fields, Iran has a production capacity of 3.5 million barrels a day, roughly 4 percent of global output. It is already a major supplier to China, India, Japan, South Korea and Turkey.
But hurdles remain for Western players. Congress could still torpedo the agreement, although President Barack Obama has pledged to veto such an effort and the administration is already working hard to keep Democratic lawmakers in line.
Once the congressional hurdle is passed, it would still likely be another year before the substantial Iranian production makes it way to the markets. The delay is one reason the reaction in oil prices was subdued Tuesday.
The Iran oil industry is also in a state of disarray. For most of the last three decades, Iran has been off limits to Western oil companies because of sanctions and Iranian laws that limit the profitability of private energy investments.
Oil and gas fields have been in sharp decline without modern technology and new investment. The country has lost a million barrels a day of exports since 2012.
Iranian officials have been promising to regain those barrels quickly once a deal is signed. At the Organization of the Petroleum Exporting Countries meeting last month, Bijan Zanganeh, the Iranian oil minister, predicted a quick export rebound of 400,000 barrels a day and an additional 600,000 barrels after six months.
But most independent oil analysts say Iran’s projections are overly optimistic. One consultancy, Wood Mackenzie, projects that Iranian exports could grow by 120,000 barrels a day by the end of 2015 and another 260,000 barrels a day by the end of next year.
“It should take a good year between the day they sign the agreement and when they add 500,000 barrels of production a day,” said Gary Ross, executive chairman and head of global oil at the Pira Energy Group, an international consultancy.
Ross said the world market should be able to absorb the extra barrels. Production in many countries is declining with oil prices slipping. Global demand, however, has been increasing.
“With each day, the market will be in a better position to accommodate the incremental Iranian oil,” Ross added.
The agreement announced had little effect on either global or U.S. oil price benchmarks, as both remained above $50 a barrel, roughly half the price of a year ago. The global market of 94 million barrels of oil a day is glutted, with an oversupply of 1 million to 2 million barrels.
In the U.S., the futures price of benchmark crude actually ended the day up 84 cents a barrel, at $53.04.
Iran has as much as 40 million barrels of crude in storage on supertankers at sea — nearly half what the world consumes in a day — that it may soon try to release on the market. But some analysts say the stored oil is of poor quality, and most refineries may be incapable of processing it.
Otherwise, the agreement details that the oil sanctions will be removed only when the United States and its allies are convinced that Tehran is modifying nuclear equipment, dismantling centrifuges and allowing detailed inspections. Oil experts said verification could mean months of delays.
The lifting of oil sanctions has been one of Iran’s prime foreign policy objectives. Its government finances and national economy are highly dependent on oil sales. The sanctions have caused major delays and cancellations in oil exploration and production projects, partly because of the state oil company’s lack of money.
Senior executives of Royal Dutch Shell, Total and Eni met with Iran’s oil minister in Vienna in June, and there have been other meetings in Tehran in recent months between the oil companies and Iranian officials.
Shell says it has already discussed potential areas of cooperation with Iran, assuming that the sanctions are lifted. “Strictly within the boundaries of the law, we are interested in exploring the role Shell can play in developing Iran’s energy potential,” the company said in a statement Tuesday.
The companies are interested in investing in Iran because it has the potential to increase production significantly over the next decade. Energy experts say Western technology and capital could stimulate far more production from Iranian oil fields at relatively low cost.
By the numbers
Iran’s share of global oil reserves.
1 million barrels a day
How much Iran says it can increase exports in a year.
380,000 barrels a day
How much one analyst says Iran can boost exports by 2017.